Often, young physicians and dentists approach me with the same question when purchasing their first Disability Income policy: “should I buy a Non-cancellable or Guaranteed Renewable policy?
The same goes for attorneys, especially the ones that just passed their state Bar exam. And, it’s certainly a “comfort” level decision for the client. What do you need to know?
For starters, the difference between the two. Non-Cancellable coverage means that so long as you pay your premiums on time, the insurance company can NOT cancel, change or alter prior to age 65 your benefits, rider or your premium amount, except at your request. Similar, and so long as premiums are paid, Guaranteed Renewable policies can’t be cancelled or changed by the insurance company on an individual basis, but premiums are subject to change on a class basis adjustment. That means that for everyone that the insurance company covers within your class, the premium would change. This rate class change is subject to state approval. Therefore, Guaranteed Renewable policies tend to come with a lower premium, translating into significant potential savings for clients, so long as the insurance company doesn’t make any future changes.
Perhaps the following 4 key points can better assist you when choosing between all options.
- Your age matters
If you’re in your mid 30’s or under, chances are you’ll be paying for your disability policy for a good 25-30 years throughout your career. Long Term Disability coverage is the most inexpensive that it will be now that you’re starting. If you can afford to lock in the best possible rate, while having a comprehensive policy, go for it! It may help eliminate future worries.On the other hand, if you’re in your mid 40s and over, chances are you have 25 years or less of coverage, and you may want to save the difference in premiums and have other types of coverage that will be important later on such as life insurance or long term care. Which is why it’s important to discuss these concerns and views with us from the start.
- Historical rate increases
Some companies are known for never having a rate increase. That doesn’t mean they won’t either. Never say never. But that’s a positive aspect of the insurance company. It shows that not only is the company financially strong, but that they have a culture of commitment to their book of business. - What can you afford?
Don’t get stuck on Non-cancelable if the premium is too much for you to handle right now. Hear me out! Many times, I get young clients that say “well, I’ll just wait to make a little more so I can get the Non-Cancellable policy.” This is truly what I call a “rookie” insurance mistake. If you know you must have the coverage to protect your family, get what you can now, and as things improve, then you make changes. But don’t risk being without it. Not having it at all is the one thing you truly can’t afford. And I mean it. If you need a ride to work, you’re not going to bypass buying a car just because you can’t afford the Mercedes you want yet…are you? - Your agent matters.
Yes, it does! Career or captive agents can only offer the products for the insurance company that they work for. That’s ok, everyone must make a living. But an independent agent can really shop the carriers and find a policy that really fits your occupation specialty and your personal career goals. Not to mention, they know the strengths and weaknesses of the different insurance company’s product.
No matter which way you go, it’s important you understand what policy features you have and why. Ask these questions. Call me if you’re not sure how to translate the insurance “lingo”. But don’t act surprised by a letter from the insurance company 12 years down the line, laying out the new rate increase. Don’t say I didn’t warn you.